An analysis of the effect of the home buyer tax credit

My last newsletter asked the question of what effect did the home buyer government stimulus money have?

My answer was I thought that the short term impact was huge. But I was really curious about what the long term impact was going to be.

And I concluded last time we’re really just in a wait and see mode to fully assess the impact.

And now we have waited…and now we can see. From the graphs, I would say that the tax credit worked, sort of. There is a definite bubble of activity that happened in April, but it was followed by a depression in July. And now, most indicators are pointing to being roughly the same as last year.

Therefore, what I thought might happen did appear to come true. People who were thinking of buying rushed their decisions, and bought early. Which did reduce inventory temporarily, but the after effect lull caused that figure to return.

I think the benefit of the credit, and a reason to do something similar again was to give 1st time buyers some cash to make repairs that are needed on many of the foreclosed homes that are dominating the market at the moment. But I could just as easily argue that the effect of that is probably not worth the cost of the entire program.

A different program that targeted foreclosed homes, and provided extra money to make them livable would be more likely to help. There are loan programs that are designed to do this, such as the FHA 203k loan, but the regulation and requirements for this particular loan can be a challenge to qualify for. I guess what I would like to see is a more streamlined method to borrow home improvement/repair money and incentives to do so. Especially for houses that will be primary residences.

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